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Which of the following contribute to a corporation's ability to build large pools of capital? That is, which of the following increase the willingness of investors to provide capital to a corporation?

I. limited liability

II. ease of transferring ownership

III. separation between the life of the business and the life of the owner

IV. double taxation of profits

V. agency costs

A. I only

B. I and III only

C. I, III, and IV only

D. I, II, and III only

E. I, II, III, and V only

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Tod Thiel
Tod ThielLv2
28 Sep 2019

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Which of the following individuals have unlimited liability based on their ownership interest?

I. general partner

II. sole proprietor

III. stockholder

IV. limited partner

A. II only

B. I and II only

C. II and IV only

D. I, II, and III only

E. I, II, and IV only

--------------------------------------------------

A company paid $1,300 in dividends and $920 in interest this past year. The common stock paid-in capital account increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?

A. -$210

B. $990

C. $1,610

D. $1,910

E. $2,190

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The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:

A. cash flow from operations.

B. capital expenditures.

C. net working capital.

D. free cash flow.

E. additions to net working capital.

---------------------------------------------------

A company had the following working capital account values. What effect did the change in net working capital have on the firm's cash flows for the year?

Beginning of Year

End of Year

Cash

$179

$164

Accounts receivable

415

480

Inventory

987

923

Accounts payable

562

649

A. net use of cash of $73

B. net use of cash of $88

C. net source of cash of $86

D. net source of cash of $101

E. net source of cash of $135

1. All the following statements concerning the use of an insured corporate cross-purchase buy-sell agreement are correct EXCEPT:

A. The value of any life insurance policies the deceased owned on the lives of the other stockholders will be included in his or her gross estate.

B. The buy-out will not involve dividend distributions to the deceased’s estate or his or her family.

C. It is preferred over the redemption-type agreement when the stockholders are all in a higher tax bracket than the corporation.

D. The surviving stockholders get an increase in their basis for income tax purposes.

E. It produces greater equity of results than a redemption-type agreement when there is a significant difference in the ages of the stockholders and in their percentages of stock ownership.

2. All the following provisions are usually included in an insured stock cross-purchase buy-sell agreement EXCEPT:

A. A provision giving each surviving stockholder an option to buy a proportionate part of a deceased’s stock.

B. A provision establishing the purchase price to be paid for the stock of a deceased stockholder.

C. A provision committing each stockholder to buy and maintain life insurance on the other stockholders.

D. A provision permitting each surviving stockholder to buy from the estate of a deceased stockholder the life insurance the deceased’s estate owns on the life of each surviving stockholder.

3. All the following statements concerning the tax implications of a gift made to a person who dies within one year of receipt of the gift are correct EXCEPT:

A. If the property is willed back to the original donor, such property is denied the usual stepped-up basis for valuing property transferred to a designated heir.

B. The beneficiary of the deceased’s will can be in receipt of capital gains, even if he or she sells the property on the date of the testator’s death.

C. If the decedent wills the property to someone other than the original owner or his or her spouse, the transferee can have the benefit of the stepped-up basis.

D. If the original donor is the spouse of the decedent-donee, a testamentary disposition to the decedent’s children will prevent realization of the benefits of the stepped-up basis.

4. D and E, a married couple, make a gift of their vacation home to their children but reserve the right to use the property during their lifetimes. Under these circumstances, which of the following statements are correct?

I. The property will be included in the donor’s gross estate at their deaths.

II. The gift tax annual exclusion is not available to D and E.

III. The unified tax credit is available to D and E.

A. I and II only

B. I and III only

C. II and III only

D. I, II and III

5. Which of the following statements most accurately describes the rights conveyed to a minor under the terms of a trust that give the minor a so-called “Crummy” power?

A. The right to withdraw the corpus at any time during minority.

B. The right to accumulate trust income to age 21 and the right to receive these funds as a distribution of corpus.

C. The right to withdraw limited amounts of the trust corpus for a limited time after a contribution is made to the trust.

D. The right to withdraw the trust’s income for the calendar year without a guardian’s approval.

The research and development department of SAMARINA SA has produced two designs of product XYZ: model One and model Two. The development costs incurred, and already paid; in getting the models to design stage are €100,000 for model One and €120,000 for model Two. However, management has decided that the company has the facilities to support production and sales of only one of the two models in the foreseeable future.

For model One, it requires an investment in machinery with an estimated useful life of five years. The machinery will cost €3,000,000 and possess a disposal value of €200,000 if resold during the first three years of ownership, and €80,000 thereafter.

For model Two, the machinery would cost €2,200,000, have a useful economic life of five years and a disposable value of €150,000 at any time after initial installation.

The marketing department has estimated the annual demand for each model for the five years commencing 1 January 2013, which is the expected time period over which either model would be sold. The financial planning department has produced the following estimated annual operating cash flows:

Model One

€000

Model Two

€000

2013

420

800

2014

420

1,000

2015

1,000

450

2016

2,400

450

2017

1,200

450

It may be assumed that the annual operating cash flows will arise on the 31 of December in each year.

The company’s money cost of capital is 12%.

You are required to:

(a) Calculate the following values for the investment proposals and discuss your findings of whether it is financially acceptable.

(i) net present value;

(ii) internal rate of return;

(iii) return on capital employed (accounting rate of return) based on average investment;

(iv) discounted payback period.

(b) Critically evaluate the use of NPV approach in proposed investments.

(c) Discuss what further information might be obtained to assist a fuller analysis.

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